Search engine startups - IPO, M&A, or flameout?

The success of Google has spawned over 1,000 search related startups. Search market share is dominated (94%) by the big five; Google 53%, Yahoo 20%, Microsoft Live 14%, AOL 5%, and Ask 2%. That leaves 6% for everyone else. However, remember that "1% of search marketshare is worth $1 Billion". Will any of the 1,000 alternative search engines ever gain 1% market share?

Nitin at Software Abstractions has some thoughts about possible exit strategies for these small search engines. My thoughts? Some of these will be acquired by the big search engines or big content publishing networks. Most of them will fade away. I don't see any of them breaking out and creating a significant stand alone business with the possible exceptions of Powerset, Hakia, and Mahalo.

Charles Knight, keeper of the list of The top 100 Alternative Search Engines has suggested a Universal Interface for all of the alternative search engines as a way to aggregate traffic. There are already lots of meta-search engines, Dogpile is an example, that essentially do this now. They send your query to all the major search engines and present the results on one page. They use only the biggest and most popular search engines, and still they have far less than 1% market share. So, I don't see an alliance of the small search engines working either.

Human powered search, or “pre-created results pages”, seems to be popular now, but it too has been done before. Yahoo’s directory was an attempt by human editors to catalog and classify web sites in the early days. About.com used guides as topical editors to create very rich and useful links to content. Both approaches eliminated spam and SEO tricks.

Mahalo, and others, are doing the same thing today and calling it “human powered search”. Jason Calacanis is a talented entrepreneur, and he has some big backers like Sequoia, Mark Cuban and Elon Musk. If anyone can do it Calacanis can. But, I think history has proven that this approach will have marginal success.

Big content publishers can be very successful with the human prepared search approach. In fact, as readers this is what we expect from them. Be the editors that find and catalog the best content on any subject. They will of course highlight their own content, but that is fine with most readers. This is why I said earlier that some of the big content publishers will likely acquire some of these alternative search engines. It makes sense.

Vertical search - There are lots of opportunities in vertical search such as jobs, shopping, medical, investments, real estate, cars, etc. People search, classified search, and local search are also big opportunities. These are smaller niche markets but attract very high advertising rates. There are two or three players in each of these market segments that can build a reasonably profitable business.

My guess is that most of the alternative search engines focusing on broad web search will fail. A few will achieve some level of success and then be acquired by one of the big five search players or large content publishing networks. Vertical search engines will find some profitable niches.

The big untapped opportunities? Local search, mobile search, and voice search. I think all three of these will converge on the cell phone to create a whole new approach to search, and a new set of winners.

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Comments

[Parag Mathur]

Don,

I agree that Local Search is a huge untapped market with no good solutions. The winner in this market will indeed reap big rewards. Guess the current indexing algorithms including PageRank do not work well for local content so this needs a radically new way of attacking the problem.

[Eli]

Don - I almost stopped reading your post when I read the sentence that said that Mahalo is one of the few search engines that has a chance of breaking out. Then I read further to see your rationale and saw that it was based solely on the names associated with it (Calacanis, Sequoia, Elon Musk and Mark Cuban). Then I really stopped reading your post. It's this sort of herd mentality that led to the initial tech bubble...thankfully, the public markets don't buy into the same hype that the blog/VC community does.

[Charles Knight]

Don,

I obviously need to be more clear. My ideal interface would not resemble a meta-search engine in any way.

Meta-search engines on my Top 100 list have not done any better than the verticals or general search engines or *any* of the search engines on the List.

I always try to emphasize that all 100 Alts share, at best, 5% of market share *combined.* No alternative search engine or any type of engine is over-taking Ask.com, much less Google!

Given 100 choices, users naturally cannot choose because they cannot know what all 100 do, so of course they revert to a major search engine. Anyone can understand the five major choices, and once they have their favorite, they don't even have to choose any more.

Isn't that why the comScores are essentially the same every month? Five choices, and most users keep using the one they have chosen a while ago. Old habits die hard.

My point is: What new interface would allow users to deal with dozens of choices or "doors" when they don't necessarily know what is behind them?

I have my concept, and I am beginning to hear of others. I would be interested in hearing yours and/or your readers'.

But it won't be a traditional meta-search engine, since we can agree that their market share is as bad as all the others.

My plan is to have a unique arrangement of the Top 100 Alternative Search Engines themselves, such that a user could easily and intuitively take different queries, at different times, to the most appropriate search engine.

What I am saying, as clearly as I can is:

If, and I emphasize If, the alternative search engines stopped acting as 100 individual search engines with no common interface, the status quo, and instead created a common homepage -

and that totally new homepage was placed next to the five major search engines - giving the public a Grand Total of Six choices - what could that homepage look like?

And I do not mean any type of merger of the Alts. They would remain 100 search engines.

That sixth homepage could then begin to take away market share from the other five.

I'll stop here. I hope I have clarified my position.

Charles Knight, editor
AltSearchEngines.com

[Mark Montgomery]

I recall much the same argument in the months and years prior to the Google beta, and I recall much the same argument about computing prior to MSFT.

Yahoo! didn't meet the needs of many users after the Web reached a certain mass. Smart scientists worked towards a better mouse trap. Google was the best IMO (at the time- not in hindsight), and was funded albeit about a year later than it should have been.

Google solved the bulk of the search problem for the consumer, but it didn't solve the more difficult challenge of information overload, and in some ways made it worse.

The problem with the answer is that the wrong question is being asked. - MM

[Mark]

Maybe there is a Google killer in all the new tech. Powerset seems to be nicely hyped.

I really think that people are ignoring unique search engine UI which is a void our startup aims to fill.

ClutterMe.com has amazing web tech under patent pending status and represents a unique licensing opportunity to larger sites.

[Bert Rogers]

I don't think there is a Google "Killer" out there. Yahoo! and Microsoft seem content to always "build a better mousetrap", and the smaller niche markets are just that: small.

My two companies that I am keeping on my radar:

1. Wolfram Alpha: niche market carved out by focusing on engineers and scientists -- promises to change the way research is done. The next step from Mathematica.

2. SEOENG: another niche market carved out by focusing on webmasters and seo companies -- promises to change the way we view search. "Search Engine Goggles" is how I view them. Essentially the "SAP" for SEO companies.

From an investment standpoint, SEOENG is much smaller than Wolfram Alpha and thus it is more likely that SEOENG will eventually get absorbed (similar to Powerset) by either Yahoo! or Microsoft. Wolfram Alpha has more resources and I see them as standing on their own two feet. Both equally enticing.

Building new "interfaces" simply won't cut it (as Mr. Knight suggested). If it depends on the infrastructure, Google will have you beat. Companies must go outside the box to find the next innovation in Search.